What?
In recent years, a trend has emerged towards a commercial strategy that intertwines agency and distribution models. In this setting, a business partner may act both as an independent distributor and as a commercial agent of a supplier. Such partners are often referred to as "dual role" agents. A practical example: a supplier of kitchen appliances, primarily operating through independent distributors, wants to launch a new, innovative type of extractor hood with maximum control. This control concerns pricing, distribution channels, and customer relationships. Distributors wishing to participate in the launch are therefore invited to do so not as independent distributors, but as 'true' agents. In this context, the question arises whether and under what conditions the business partner can indeed act as a genuine agent (from a competition law perspective) for the new extractor hood, despite their hybrid role. According to DLC Countdown No. 4, this classification is only valid when the agent bears none or only minimal risks associated with the transactions carried out or negotiated on behalf of the principal.
Now?
Despite the European Commission's Directorate-General for Competition (DG Competition) expressing growing concern that agency may lead to "spill-over effects" in the business partner's role as an independent distributor, the current VBER and Vertical Guidelines provide no relevant guidance regarding "dual role" agents. In 2021, the European Commission therefore published a working paper exploring this issue in more detail.
What changes as of 1 June 2022?
The current proposals for the Vertical Guidelines largely reflect the content of the working paper. Under these proposals, an independent distributor may also act as an agent for other products or services of the same supplier, provided that certain criteria are met. These criteria concern, among other things, the clear demarcation of commercial and financial risks related to the agency and the freedom with which the distributor can consent to act as an agent. All relevant commercial and financial risks (including market-specific investments) associated with the products and services covered by the agency must be borne by the supplier.
What does this mean in practice?
Qualifying as a genuine agent in a "dual role" scenario will be a complex and costly endeavour, particularly due to the investments that must be borne by the supplier.
Assessment
It is debatable whether the chosen approach aligns with the case law of the European Court of Justice. To comply with the Court's jurisprudence, a "but-for" test appears sufficient: envisage a scenario in which the agency does not exist and determine the costs that would be avoided. These costs must then be borne by the supplier.
Want to know more? Stay tuned…
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